Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
Paper 8- Cost Accounting & Financial Management
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
Paper-8: Cost Accounting & Financial Management
Full Marks:100
Time allowed:3 hours
Section-A:
Answer Question No. 1 which is compulsory Carries 25 Marks
1. Answer the following questions
(A) Each Question carries 2 Marks
[5 ×2 = 10]
(i) Material with invoice value ` 10,000 was received in the Stores Dept. The transport cost
was ` 200. Since the material leaked in transit, damage to other goods of ` 350 had to be
paid to the transporter. What would be the material cost?
(ii) Prime Cost = ` 12,50,000; Works Cost = ` 20,00,000 and office overheads are 30% of
factory overheads. What is the Cost of Production?
(iii) The variable and semi variable costs of producing 50,000 units are ` 6 per unit and `12
per unit respectively. If at 20,000 units, these total costs add up to ` 4,80,000, what is the
amount of fixed cost component of the semi variable cost?
(iv) M. Ltd. does not use any debt in its capital structure. The company has earnings before
interest and tax of ` 2,00,000 per annum and the capitalization rate is 12%. Assume
corporate tax of 30%. Calculate the value of the firm according to MM Hypothesis.
(v) The proprietor’s fund is `45,00,000 and ratio of fixed assets to proprietor’s funds is 0.75. Find
the amount of net working capital.
(B) State whether the following statements are True or False
[5 ×1 = 5]
(i) Overhead and conversion cost are inter-changeable terms.
(ii) Royalty based on units produced is considered as direct expenses.
(iii) Ideal standards are achievable in normal course.
(iv) Operating Cycle means time required to Produce One Quantity of a Product.
(v) NPV is Non-Discounted Cash Flow Technique of Capital Budgeting.
(C) Fill in the Blanks
[5 × 1 = 5]
(i) When time saved is equal to time taken then earnings of a worker under Halsey Plan and
Rowan Plan are the ____________.
(ii) The difference between
___________________.
actual
and
absorbed
factory
overhead
is
called
(iii) Under-absorption of -------------- results in higher amount of profit.
(iv) If Profitability Index is 1, cash inflow and cash outflow would be----------.
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Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
(v) A GDR is a …………. Instrument.
(D) Match the Following
1.
2.
3.
4.
5.
Column I
Time & Motion Study
Primary Packing Material
Telephones
Management accounting is a tool to
Angle of Incidence
[5 × 1 = 5]
A.
B.
C.
D.
E.
Column II
No. of extensions in a department
Profitability rate
Management
Direct Material Cost
Labour Incentive Scheme
Answer:
(A) Answer the following:
(i) Material Cost = 10,000 + 200
= 10,200.
As per CAS, material cost includes purchase cost, transport inwards and excludes any
damages or penalty paid to any authority.
(ii) Factory overheads = 7,50,000; Office OH = 30 % = 2,25,000;
COP = 22,25,000
(iii) Total Cost at 50,000 units = 18 x 50,000 = 9,00,000;
Cost at 20,000 = 4,80,000.
Difference in costs/ diff. in qty = 4,20,000/30,000 = ` 14 per unit.
At 20,000 level, Variable cost = 14 x 20,000 = 280,000.
Hence fixed cost component = 480,000-280,000 = 2,00,000
(iv) Vu = EBIT (1-t)/K0 = 2,00,000 (0.7)/0.12
= 11,66,667
(v) Fixed Assets = 0.75 × 45,00,000;
FA 33,75,000.
Net Current Assets = Proprietors Funds – Fixed Assets
= 45,00,000 – 33,75,000
= 11,25,000
Net working capital = Net current assets.
(B) True or False:
(i) False
(ii) True
(iii) False
(iv) False
(v) False
(C) Fill in the blanks:
(i) Same
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Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
(ii) Under or Over absorbed overheads
(iii) Overhead
(iv) Equal
(v) Negotiable
(D) Matching:
1.
2.
3.
4.
5.
Column I
Time & Motion Study
Primary Packing Material
Telephones
Management accounting is a tool to
Angle of Incidence
Column II
E. Labour Incentive Scheme
D. Direct Material Cost
A. No. of extensions in a department
C. Management
B. Profitability rate
Section-B
Answer any three Question from Q. No 2,3,4 and 5. Each Question carries 15 Marks
2. (A) A Ltd. was ordering (in economic order quantities) (EOQ) its raw material RM at a price of
`750 per unit. The average annual consumption was 18000 units. Carrying cost was 20% of
average inventory and the ordering cost was `1500 per order. A Ltd. wants to move
towards the Just-In-Time system and the new policy proposes as follows:
The average number of units held in stock will be 100 units;
Ordering cost per order will be `1510;
Carrying cost will be 20% of average inventory.
However the purchase price will increase. The total new ordering cost will be 9 times the
new carrying cost.
(i) What was the EOQ before the new policy?
(ii) Calculate the inventory turnover ratio before and after the new policy.
(iii) How much is the increase in purchase price under the new policy? Compare the two
policies regarding raw material management and offer your comments.
[3+4+5=12]
Answer:
(i) Let, ‘q’ be the EOQ.
At EOQ, Ordering cost = Carrying cost
18,000
q
x 1,500  750 x 20% x
q
2
q2=
18,000 x 1500 x 2
750 x 20%
q = 600
Therefore, before the new policy the EOQ was 600 units.
(ii) Inventory turnover ratio =
Cost of goods sold
Average inventory
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 4
Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
Before the new policy =
After the new policy =
18,000 x 750 18,000

 60 times
600
300
x 750
2
18,000 x 750 18,000

 180 times
100 x 750
100
(iii) Let ‘X’ be the new purchase price
As per the question,
9 (20% x 100 x X) = (18,000/200) x 1510 [assuming the EOQ = 100 x 2 = 200 units]
Or, 180 X = 1,35,900
Or, X = 755
Therefore, increase in purchase price is ` 5 p.u.
Comparison of policies
Particulars
Computation
Old policy
Purchase cost
18,000 x 750
1,35,00,000
18,000 x 755
Ordering cost
(18,000 ÷ 600) x 1500
New policy
1,35,90,000
45,000
(18000 ÷ 200) x 1510
Carrying cost
20% of (600 ÷ 2) x 750
1,35,900
45,000
20 % of (200 ÷ 2) x 755
Total
15,100
1,35,90,000
1,37,41,000
As the total cost is more in case of new policy, inventory management should be as per
EOQ method.
(B) `3,000/- and `60,000/- are written off raw materials and finished goods respectively for
obsolescence. How should these be treated in Cost Accounts?
[3]
Answer:
Obsolete inventory- Cost of Raw Material and Finished goods should be directly written of
in the Profit & Loss A/c. No charge is made to cost of production.
`63,000 (`3,000 + `60,000) should be written off to Profit & Loss A/c.
3. (A) What are the differences between Cost Control and Cost Reduction?
[5]
Answer:
Cost Control
Cost Reduction
(a) Cost Control represents efforts made (a) Cost Reduction represents the achievement
towards achieving target or goal.
in reduction of cost.
(b) The process of Cost Control is to set (b) Cost Reduction is not concerned with
up a target, ascertain the actual
maintenance of performance according to
performance and compare it with
standard.
the
target,
investigate
the
variances, and take remedial
measures.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 5
Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
(c) Cost Control assumes the existence (c) Cost Reduction assumes the existence of
of standards or norms which are not
concealed potential savings in standards or
challenged.
norms which are therefore subjected to a
constant challenge with a view to
improvement by bringing out savings.
(d) Cost Control is a preventive (d) Cost Reduction is a corrective function. It
function. Costs are optimized
operates even when an efficient cost control
before they are incurred.
system exists. There is room for reduction in
the achieved costs under controlled
conditions.
(e) Cost
Control
approach.
lacks
dynamic (e) Cost Reduction is a continuous process of
analysis by various methods of all the factors
affecting costs, efforts and functions in an
organization. The main stress is upon the why
of a thing and the aim is it have continual
economy in costs
(B) Compute the employee cost from the following particulars:
Basic pay `3,00,000. Accommodation provided to employees free of cost (this
accommodation is owned by the employer, depreciation of the accommodation is
`50,000. Maintenance charges `40,000 and municipal tax of the accommodation `2,000.
Employer's contribution to PF `60,000. Due to delay in making payment, a penalty was
imposed for `3,000, which was paid by the employer.
Reimbursement of medical expenses `40,000.
Employees contribution to PF `60,000.
Bonus paid to employees `1,00,000.
Hospitalisation expenses of Employee's family `1,00,000 paid by employer.
[10]
Answer:
Computation of Employee Cost:
Add:
Add:
Add:
Add:
Add:
Particulars
Basic pay
Cost of accommodation provided by employer =
Depreciation + Maintenance Charges & Municipal Tax =
50,000 + 40,000 + 2,000 = 92,000
Employer’s contribution to PF
Reimbursement of medical expenses
Hospitalization expenses
Bonus paid to employee
Total Employee Cost
Amount (`)
3,00,000
92,000
60,000
40,000
1,00,000
1,00,000
6,92,000
4. (A) Following particulars are revealed from the costing records of M/S Jupiter & Co. Ltd. in the
year 2015:
Production - 15,000 units
(`)
Raw material cost
Labour cost
Factory overheads
Office overheads
3,00,000
1,80,000
1,20,000
60,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 6
Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
Selling expenses
15,000
Rate of profit 25% on selling price.
Now the management decided to produce 20,000 units in 2016. As per Co's estimate, cost
of raw materials will be increased by 25% and labour cost will also increase by 15%. 50%
of overhead charges are fixed and the rest is variable. The selling expenses per unit will
also be reduced by 25%.
There will be no change in rate of profit.
Prepare Cost Statements for both the years 2015 and 2016.
[4+7=11]
Answer:
Statement of cost & profit (cost sheet)
Output 15,000 units for 2015
Amount (`)
20
12
32
8
40
4
44
1
45
15
60
Particulars
Raw materials
Labour
Prime Cost
Add: Factory Overhead
Works cost
Add: Office overhead
Cost of Production
Add: Selling Exp.
Cost of Sales
Add: Profit 25% on Sales or 33/1/3 % on cost of sales
Sales
Statement of Cost & Profit (cost sheet)
Output 20,000 units for 2016
Particulars
Cost
per Unit (`)
Raw materials (`20 × 125% × 20,000)
25
Add: Labour (`12 × 115% × 20,000)
13.80
Prime Cost
38.80
`1,20,000
7.00
Add: Factory Overheads [
i.e. `60,000 +
Amount (`)
3,00,000
1,80,000
4,80,000
1,20,000
6,00,000
60,000
6,60,000
15,000
6,75,000
2,25,000
9,00,000
Total Cost
(`)
5,00,000
2,76,000
7,76,000
1,40,000
2
`60,000
×20,000 i.e.`80,000]
15,000
Works Cost
Add:
Office
Overheads
`60,000
[
i.e.
2
`30,000
`30,000
×20,000 i.e.`40,000]
15,000
Cost of Production
Add: Selling Expenses [{`1 × (100 – 25 )%} × 20,000]
Cost of Sales
Add: Profit 25% on Sales or 33.33% on Cost of Sales
Sales
(B) What are the main objectives of group bonus system?
+
45.80
3.50
9,16,000
70,000
49.30
0.75
50.05
16.68
66.73
9,86,000
15,000
10,01,000
3,33,600
13,34,600
[4]
Answer:
Following are the main objects or Group Bonus System:
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 7
Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1




Creation of team Spirit
Elimination of excessive waste materials and time.
Recognition of group efforts.
Improving productivity.
5. (A) A firm has purchased a plant to manufacture a new product. The cost data are given
below:
Estimated annual sales
Material
Direct labour
Overheads - Manufacturing
Administrative expenses
Selling Expenses
36,000 units
` 4 per unit
` 0.6 per unit
` 24,000 p.a.
` 28,800 p.a.
15% of sales
Calculate the selling price if profit per unit is ` 1.50. Assume whatever is produced is sold
[5]
Answer:
Variable cost p.u.
= 4+.6
Profit
= 1.5
Total
= 6.1
= 4.6
6.1 x 36,000 + 24,000 + 28800 = .85 x s x 36000.
Selling price per unit = s = 8.9019 = 8.90
(B) The following information relates to the activities of production Dept. M of MTH Ltd. for Nov
2016:
Materials Consumed: `3,83,000; Direct labour: `5,74,000; Factory overhead chargeable to
Dept. M: ` 2,75,760; Labour hours worked: 18,384 hours; Machine hours: 3064 hours;
One job order carried out in Dept. M has the following details:
Material Consumed: ` 11,000; Direct Labour Cost = ` 19,000; Direct labour hours: 540
hours;
Machine hours worked: 85 hours.
Find the amount of factory overheads for the job under the following methods of
overhead absorption: % of direct material cost, % of direct labour cost, % of prime cost,
direct labour hour rate and machine hour rate.
[10]
Answer:
Parameters
overhead
absorption
for Total Cost Deptal overhead as % Job order Overhea
for Dept
of cost element
Cost
d to Job
order at
Deptal %
Material
3,83,000
275760/383000 = 72%
11000
7920
Direct Labour
5,74,500 2,75,760/ 574500 = 48%
19000
9120
Prime Cost
9,57,500 275760/957500 = 28.8%
30,000
8640
Machine Hours
= 3064;
Deptal m/c hr rate
= 275760/3064 =
90 `/hr
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 8
Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
M/c hour rate for job x m/c hrs for job = 85 x 90 =
Direct labour hour rate for dept = 275760/18384 =
Direct labour hour rate for job = 540 x 15 =
7650
15 `/hr
8100
Section-C
Answer any two Questions from Q. No 6, 7 and 8. Each Question carries 15 Marks
6. (A) XYZ Co. Ltd. desires to produce a new product at a price of `1,200 per unit, with the
expectation of annual sales of 5,000 units. Variable costs amounts to `800 per unit and two
months credit facility is to be granted.
It is estimated that 10% of customers will be defaulters. Others will pay on due date.
Interest rate is 15% p.a. A credit agency has offered the Company a suggestion which it
claims can help to identify possible bad debts. The agency for such job will demand
`3,00,000 p.a. and will be able to identify 20% of customers as being potential bad debts. If
these customers are rejected no actual bad debts will result. Should the Company accept
the suggestion of credit agency?
[3+4=7]
Answer:
The annual return from the new product if the agency is not engaged.
Sales (` 1,200 × 5,000)
Less: Bad debts (10%)
------------
Variable cost (`800 × 5,000)
Interest on investment in debtors (40,00,000 × 15/100 × 2/12)
Net profit
40,00,000
1,00,000
-----
(`)
60,00,000
6,00,000
54,00,000
41,00,000
13,00,000
Annual return from new products if the credit agency is engaged:
Sales (80% of 60,00,000)
Bad debts
------------
Variable Cost : (800 × 4,000)
Interest on investment in debtors (32,00,000 × 15/100 × 2/12)
32,00,000
80,000
Less: Cost of credit agency
Net profit
-
(`)
48,00,000
48,00,000
32,80,000
15,20,000
3,00,000
12,20,000
Since the net profits is reduced under the new agency’s suggestion, (`13,00,000 `12,20,0000) the proposal should not be accepted.
(B) M/S Light & Sound Co. Ltd. has sales of ` 12,00,000, variable cost `9,00,000 and fixed cost
is `2,00,000 and debt of `5,00,000 of 10% rate of interest.
From the above details find out the operating, financial and combined leverages. If the
Co. wants to double its earnings before interest and tax (EBIT). how much of a rise in sales
would be needed on a percentage basis?
[6+2=8]
Answer:
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Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
Statement of Existing Profit:
(`)
12,00,000
9,00,000
3,00,000
2,00,000
1,00,000
50,000
50,000
Sales V. Cost
Contribution
Less: Fixed Cost
EBIT
Less: Interest @ 10% on `5,00,000
Profit before Tax (PBT)
Operating leverage
=
Financial leverage
=
Contribution
EBIT
EBIT
PBT
=
=
3,00,000
1,00,000
1,00,000
50,000
=3
=2
Combined leverage 3 × 2 = 6
Statement of sales needed to double the EBIT.
Operating leverage is 3 times i.e. 33/1/3% increase in sales volume causes a 100% increase in
operating profit or EBIT. So, at the sales ` 16,00,000, operating profit EBIT will become `2,00,000
i.e. double the existing one.
7. (A) The following accounting information and financial ratios of Bhalu Ltd. relate to the year
ended 31st March, 2016:
Inventory Turnover Ratio (considering cost of goods sold)
Creditors Turnover Ratio
Debtors Turnover Ratio
Current Ratio
Gross Profit Ratio
6 times
10 times
12 times
2.4
25%
Total sales `60 lakhs; cash sales 25% of credit sales; cash purchases ` 4,60,000; working
capital `7,14,000; closing inventory is `1,60,000 more than opening inventory.
You are required to calculate:
(i) Average Inventory
(ii) Purchases
(iii) Average Debtors
(iv) Average Creditors
(v) Average Payment Period
(vi) Average Collection Period
(vii)Current Assets
(viii) Current Liabilities
[10]
Answer:
(i) Computation of Average Inventory:
Gross Profit =25% of `60,00,000 = `15,00,000
Cost of goods sold (COGS) =`60,00,000 - `15,00,000= `45,00,000
Inventory Turnover Ratio =COGS/Average Inventory
`45,00,000/Average Inventory = 6
Average Inventory = `7,50,000
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Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
(ii) Computation of Purchases:
Purchases = COGS + Increase in Inventory = `45,00,000 + `1,60,000 = `46,60,000
(iii) Computation of Average Debtors:
Let credit sales be `100 then cash sales = 25% of 100 = `25, and total sales = `125
When total sales is `60 lakhs then credit sales = `60,00,000 × 100/125 = `48,00,000 and cash
sales = `12,00,000
Debtors Turnover = Net Credit Sales/Average Debtors = 12
Average Debtors = `48,00,000 /12 = `4,00,000
(iv) Computation of Average Creditors:
Credit Purchase = Purchases `46,60,000 – Cash purchase `4,60,000 = `42,00,000
Creditors Turnover = Credit Purchases/Average Creditors
Average Creditors = `42,00,000/10 = `4,20,000
(v) Computation of Average Payment Period:
Average Payment Period = Average Creditors × 365/Credit Purchase
=`4,20,000 × 365/ `42,00,000 = 36.5 days
Or 365/Creditors Turnover = 365/10 = 36.5 days
(vi) Computation of Average Collection Period:
Average Collection Period = Average Debtors × 365/Net Credit Sales
= `4,00,000 × 365/ `48,00,000 = 30.417 days
Or 365/Debtors Turnover = 365/12 = 30.417
(vii + viii)
Computation of Current Assets and Current Liabilities:
Current Ratio = Current Assets / Current Liabilities =2.4
Let Current Liabilities be 'a' then Current Assets will be '2.4a' and Working Capital = 2.4a -a
= 1.4a
If working capital is `7,14,000
Then Current Liabilities = `7,14,000 /1.4 = `5,10,000
Current Assets = `5,10,000 × 2.4 = `12,24,000
(B) A company has earnings of `5,00,000. The capital structure of the company has debt and
equity in which debt of `8,00,000 is borrowed at 10%. The cost of equity capital is currently
12.5%. Calculate the value of the firm and overall cost of capital by the net income
approach. Ignore taxes. Take market value of debt at par.
[5]
Answer:
Computation of Value of the firm:
`
EBIT
Less: Interest on `8,00,000 @ 10%
Earnings for shareholders
Ke = Cost of Equity Capital
Market value of equity
Market value of debt
Value of the firm
5,00,000
80,000
4,20,000
12.5%
33,60,000
8,00,000
41,60,000
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 11
Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
Overall cost of capital
` 5, 00, 000
= 12.02% or 12.019% %
` 41, 60, 000
8. (A) The following balances are provided by M Ltd. for the years ended 31st March, 2014 and
2016:
Particulars
General Reserve
Profit & Loss A/c
11 % Debentures
Goodwill
Land & Building
Plant & Machinery
Investment (Non trading)
Creditors
Provision for tax
Proposed Dividend
Stock
Debtors
Cash at Bank
Prepaid Expenses
'
31.03.2015
2,40,000
4,20,000
10,00,000
2,00,000
14,00,000
12,00,000
4,80,000
3,70,000
1,60,000,
2,72,000
8,00,000
5,76,000
1,76,000
30,000
31.03.2016
2,90,000
6,00,000
6,00,000
1,60,000
13,00,000
13,20,000
4,40,000
4,30,000
2,10,000
2,88,000
7,70,000
8,30,000
1,86,000
22,000
Additional Information:
1. Investment were sold during the year for `70,000.
2. During the year an old machine costing `1,60,000 was sold for `72,000. Its written down
value was `90,000.
3. Depreciation was charged on plant and machinery @ 20% on the opening balance.
4. There was no purchase or sale of land and building during the year.
5. Provision for tax made during the year was `1,92,000.
6. During the year premium on redemption of debentures written-off was `40,000.
You are required to prepare a statement showing the net cash flow from operating
activities.
[10]
Answer:
Statement Showing Net cash flow from Operating Activities for the year ended 31st March,
2016 of M Ltd.
Particulars
`
`
Profit & Loss A/c as on 31.03.2015
6,00,000
Less: Profit &Loss A/c as on 31.03.2014
4,20,000
1,80,000
Add: Transfer to General Reserve (` 2,90,000 – 2,40,000)
50,000
Provision for tax
1,92,000
Proposed Dividend
2,88,000
Profit before tax
5,30,000
7,10,000
Adjustment for Depreciation:
Land & Building
1,00,000
Plant & Machinery
2,40,000
Profit on sale of Investment (`70,000 - `40,000) WN-2
3,40,000
(30,000)
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 12
Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
Loss on sale of Plant & Machinery
18,000
Goodwill written-off (` 2,00,000 – 1,60,000)
40,000
Premium on redemption of debentures written-off
40,000
Operating Profit before Working Capital Changes
11,18,000
W. C. Changes: Decrease in Prepaid Expenses
8,000
Decrease in Stock
30,000
Increase in Debtors
(2,54,000)
Increase in Creditors
60,000
Cash generated from Operations
9,62,000
Income Tax paid WN-1
(1,42,000)
Net Cash Inflow from Operating Activities
Working Notes:
Dr.
8,20,000
Provision for Tax Account
`
Particulars
1,42,000 By Balance b/d
2,10,000 By Profit & Loss A/c
3,52,000
Particulars
To Bank A/c (Balancing figure)
To Balance c/d
Dr
Particulars
To Balance b/d
To Profit & Loss A/c (profit)
Cr.
`
1,60,000
1,92,000
3,52,000
Investment Account
`
Particulars
4,80,000 By Bank A/c (sale)
30,000 By Balance c/d
5,10,000
Cr.
`
70,000
4,40,000
5,10,000
(B) M/s. Progressive Co. Ltd. is considering an investment in Machine X. The cash flows
expected are as under:
Initial Outflow (in lakhs `)
Cost of Machine
1st year
30
Cash in flows (in lakhs `)
At the end of
nd
2 year
3rd year
4th year
-
10
15
12
5th
year
16
The cost of capital is 10% p. a. PV of `1 at 10% from year one to five:
End of year
1
2
3
4
5
P/V factor:
.91
.83
.75
.68
.62
Advise the Management whether the machine may be bought using the Net Present
Value Method.
[5]
Answer:
MACHINE ‘X’ (` in Lakhs)
Year
1
2
3
4
5
Cash in Flow
10
15
12
16
P/V factor
0.91
0.83
0.75
0.68
0.62
P/V (`)
8.30
11.25
8.16
9.92
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 13
Answer to MTP_Intermediate_Syllabus 2012_Jun2017_Set 1
Less: Investment
+Ve
37.63
30.00
7.63
NPV is +Ve, hence machine X can be bought.
Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 14